Topic 3 - attractiveness of country markets

Question 1

Effect of economy

Answer 1

Growth of middle class, more disposable income, more money to spend on goods

Question 2

Absolute advantage

Answer 2

The ability of one country to produce a good at lower cost than another

Question 3

Comparitive advantage

Answer 3

Ability of a country to produce a particular good or service at lower opportunity cost than another party

Question 4

Things that make a market attractive

Answer 4

• economic growth
• access to raw materials
• cheap labour
• government policies
• exchange rate
• competitiveness

Question 5

Human development index

Answer 5

Constructed by the UN and provides a measure of development based on access to health care and education as well as income, takes into account qualitative and quantitative aspects

Question 6

How does political stability have an effect

Answer 6

Political instability is unnattractive -changing laws may mean business’ have higher costs due to making changes to regimes

• war zones bad idea
• trade off between risk and profitability
• might build relationships with politicians to avoid being hit by the outcomes

Question 7

Problamatic government policies

Answer 7

• tax
• exchange rate
• trade barriers
• start up cost and time
• will there be government grants

Question 8

Why wouldnt you enter?

Answer 8

• lack of skilled labour or expensive
• unstable gov
• not favourable exchange rate
• long start up time
• quotas and tarrriffs are restrictive

Question 9

How does commodity prices effect decision to go into a country

Answer 9

Lower prices lower costs higher profit margin

Question 10

Factors affecting market attractiveness

Answer 10

• intensity of competition
• opportunities to differentiate products and services (e.g. McDonalds Indian menu)
• exchange rate (whether you get more of less for your money from country to country)
• technological/educational developments within the market (do they have access to tech. needed to produce your products)
• how cheaply they can produce there good in that country

Question 11

how does infrastructure have an effect?

Answer 11

• poor road networks been harder to transport goods/services which means costs will more than likely increase
• may affect what type of products will be in demand e.g. if there is few proper roads lots of dirt tracks maybe less demand for luxury cars
• geographical proximity - driving hundreds of miles can sometimes be more expensive than shipping thousands of miles - is it really worth it

Question 12

tactics to avoid paying more when going into new markets

Answer 12

in countries with high corporation tax, companies use tactics like transfer pricing to avoid paying the tax to keep profits higher

Question 13

what is red tape

Answer 13

relates to ease of starting a business - how much paper work/documentation has to be done before entering a new market, can affect a business’ decision on which market to enter

Question 14

how to government policies help

Answer 14

government often offer grants or subsidies which basically makes it cheaper for a business to do business, this is often done in poverty stricken areas or in countries with poor economic growth in order to bring choice and employment to the area in order to increase GDP per capita

Question 15

affects of HDI and GDP

Answer 15

business’ tend to target areas of high HDI and GDP as it means the people are generally educated, healthy and have more disposable income/higher consumption, however, labour costs are generally higher

Question 16

Risks of entering foreign markets

Answer 16

• In places like China, counterfeit goods are a huge problem, particularly for luxury clothing brands
• if the legal systems don’t protect the business’ assets
• unstable government; laws changing often